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Canada’s Trade Deficit Narrowed Significantly in October
Canada's trade deficit narrowed to $1.5B in October, from $3.4B in September. Exports rose 2.7% while imports slid 1.6%. In real terms, exports were up 1.2%, while imports fell by a hefty 3.9%.
The strength in exports was widespread, with all but two industries - aircraft and other transportation equipment (-7.7%) and metal ores and non-metallic minerals (-5%) - recording gains. Leading the way was chemical, plastic and rubber products (+12%), followed by farm, fishing and intermediate food products (+7.7%).
The decline in imports was also fairly broad based, with metal ores and non-metallic minerals (-20%) and motor vehicles and parts (-8%) recording the largest declines. The latter was driven by reduced parts imports in light of the strike at an auto assembly plant. Aircraft and other transportation equipment (+16%) provided some offset.
Canada's trade surplus with the U.S. widened to $3.5B during the month (previously $2.0B), as exports rose 4% while imports were down 0.6%. Canada's trade deficit with the rest of the world narrowed to $5.0B in October (previously $5.4B), as the decline in imports (-3.3%) outpaced the decline in exports (-1.4%).
Key Implications
Following four consecutive months of declines, export volumes bounced back, fully erasing the drop recorded in August and September. This provides a stronger handoff for the fourth quarter, which should see a notable step up in fourth quarter growth relative to Q3's 1.7% pace.
Looking ahead, exports should manage to gain some traction, supported by a healthy U.S. economy and a Canadian dollar hovering around the 80 US cent mark. Moreover, the strike at an auto assembly plant that weighed on exports through the first half of the month should lead to higher motor vehicle exports going forward. Of course the NAFTA renegotiations remain a wildcard, but given the slow progress to date, any changes are unlikely to take effect within the next year.
This report, combined with last week's stellar employment report, will be looked favorably upon by the data dependent Bank of Canada. With most other areas of the economy evolving as expected by the Bank, higher interest rates are not far off.
Trade Idea Wrap-up: USD/CHF – Buy at 0.9795
USD/CHF - 0.9861
Most recent candlesticks pattern : N/A
Trend : Near term down
Tenkan-Sen level : 0.9856
Kijun-Sen level : 0.9850
Ichimoku cloud top : 0.9819
Ichimoku cloud bottom : 0.9809
Original strategy :
Buy at 0.9795, Target: 0.9895, Stop: 0.9760
Position : -
Target : -
Stop : -
New strategy :
Buy at 0.9795, Target: 0.9895, Stop: 0.9760
Position : -
Target : -
Stop : -
As the greenback has maintained a firm undertone after staging a strong rebound from 0.9735 (last Friday’s low), adding credence to our view that a temporary low has been formed there and consolidation with upside bias remains for gain to last week’s high at 0.9882, however, a sustained breach above this level is needed to confirm this view and bring at least a retracement of recent decline to 0.9900 and later towards resistance at 0.9947.
In view of this, we are looking to buy dollar on dips as 0.9775-85 should limit downside and bring another rebound. Below 0.9750 would risk a retest of said last week’s low at 0.9735 but only break there would signal the decline from 1.1038 top has resumed for weakness to 0.9705 support.
Trade Idea Wrap-up: GBP/USD – Hold short entered at 1.3440
GBP/USD - 1.3421
Most recent candlesticks pattern : N/A
Trend : Near term up
Tenkan-Sen level : 1.3422
Kijun-Sen level : 1.3451
Ichimoku cloud top : 1.3485
Ichimoku cloud bottom : 1.3479
Original strategy :
Sold at 1.3440, Target: 1.3340, Stop: 1.3475
Position : - Short at 1.3440
Target : - 1.3340
Stop : - 1.3475
New strategy :
Hold short entered at 1.3440, Target: 1.3340, Stop: 1.3475
Position : - Short at 1.3440
Target : - 1.3340
Stop : - 1.3475
Cable’s anticipated selloff has reinforced our view that top has been formed at 1.3550 and consolidation with downside bias remains for the fall from 1.3550 to bring retracement of recent rise, hence further weakness to 1.3340-50 (61.8% Fibonacci retracement of 1.3221-1.3550) would be seen, however, near term oversold condition should prevent sharp fall below 1.3300 and reckon 1.3260-65 would hold, bring rebound later.
In view of this, we are holding on to our short position entered at 1.3440. Above the Kijun-Sen (now at 1.3451) would defer and risk test of resistance at 1.3483 but only break there would signal an intra-day low is formed instead, bring another bounce to 1.3530-35 first.
Trade Idea Wrap-up: EUR/USD – Sell at 1.1915
EUR/USD - 1.1825
Most recent candlesticks pattern : N/A
Trend : Near term down
Tenkan-Sen level : 1.1845
Kijun-Sen level : 1.1845
Ichimoku cloud top : 1.1875
Ichimoku cloud bottom : 1.1872
Original strategy :
Sell at 1.1915, Target: 1.1815, Stop: 1.1950
Position : -
Target : -
Stop : -
New strategy :
Sell at 1.1915, Target: 1.1815, Stop: 1.1950
Position : -
Target : -
Stop : -
As the single currency recovered after holding above support at 1.1809, retaining our view that further consolidation below resistance at 1.1961 (last week’s high) would be seen and mild downside bias remains for weakness towards support at 1.1808-09 (61.8% Fibonacci retracement of 1.1713-1.1961 and previous support), however, break there is needed to retain bearishness and extend weakness to 1.1770 and possibly to support at 1.1736 but price should stay above previous key support at 1.1713.
In view of this, we are looking to sell euro on recovery as 1.1910-20 should limit upside and bring another decline. Above said Friday’s high at 1.1940 would revive bullishness, bring retest of 1.1961, break there would confirm early upmove has resumed for headway to 1.1990-00 which is likely to hold from here.
Trade Idea Wrap-up: USD/JPY – Buy at 112.10
USD/JPY - 112.75
Most recent candlesticks pattern : N/A
Trend : Near term up
Tenkan-Sen level : 112.60
Kijun-Sen level : 112.73
Ichimoku cloud top : 112.57
Ichimoku cloud bottom : 112.24
Original strategy :
Buy at 112.10, Target: 113.30, Stop: 111.75
Position : -
Target : -
Stop : -
New strategy :
Buy at 112.10, Target: 113.30, Stop: 111.75
Position : -
Target : -
Stop : -
As the greenback retreated after rising to 113.09 yesterday, suggesting consolidation below this level would be seen and pullback to 112.10-20 cannot be ruled out, however, reckon downside would be limited to 111.80-85 and bring another rise later, above said resistance at 113.09 would extend recent rise to resistance at 113.33 but loss of upward momentum should prevent sharp move beyond 113.60-70.
In view of this, we are still looking to buy dollar on pullback as 112.00-10 should limit downside and bring another rise. Below 111.80 would defer and risk weakness to 111.60 but only break of said support at 111.37-41 would abort and signal top is formed instead.
Trade Idea: EUR/GBP – Sell at 0.8885
EUR/GBP - 0.8810
Original strategy :
Sell at 0.8885, Target: 0.8750, Stop: 0.8920
Position : -
Target : -
Stop : -
New strategy :
Sell at 0.8885, Target: 0.8750, Stop: 0.8920
Position : -
Target : -
Stop : -
Although the single currency recovered after anticipated fall to 0.8756 and consolidation above this level would be seen, reckon upside would be limited to 0.8880-85 and bring another decline, below said support at 0.8756 would extend the fall from 0.9015 towards previous support at 0.9733 which is likely to hold on first testing.
In view of this, we are looking to reinstate short on recovery as 0.8880-85 should limit upside. Above previous support at 0.8915 (now resistance) would defer and prolong choppy trading, risk rebound to 0.8935-40, however, still reckon said resistance at 0.8982 would cap upside and bring another retreat later. Only above indicated resistance at 0.9015 would risk test of previous resistance at 0.9033 but only a breach of this level would signal an upside break of recent established broad range has occurred, then subsequent rise to 0.9070-75 would follow.
Our preferred count is that, after forming a major top at 0.9805 (wave V), (A)-(B)-(C) correction is unfolding with (A) leg ended at 0.8400 (A: 0.8637, B: 0.9491 and 5-waver C ended at 0.8400. Wave (B) has ended at 0.9413 and impulsive wave (C) has either ended at 0.8067 or may extend one more fall to 0.8000 before prospect of another rally. Current breach of indicated resistance at 0.9043 confirms our view that the (C) leg has ended and bring stronger rebound towards 0.9150/54, then towards 0.9240/50.
Sterling Bruised by Brexit Uncertainty, Dollar Shaky
The British Pound is weak and wobbly following disappointment that Prime Minister Theresa May was unable to secure a Brexit deal on Monday.
Talks were brought to an abrupt halt after Northern Irish politicians threw a spanner in the works with their objections to border proposals. Although May is currently fighting hard to save the deal after the DUP veto, anxiety is likely to heighten as the Brexit clock ticks. With domestic political woes and Brexit uncertainty both weighing heavily on buying sentiment, the British Pound is likely to be exposed to further downside losses.
Steering away from political developments, activity in Britain's service sector dropped more than expected in November, eroding optimism over the British economy. UK Services decreased to 53.8 in November, down from 55.6 in October as volumes of new work eased and prices rose. The mixed market reaction towards November's soft Services PMI suggests that investors are overlooking the fundamentals and focusing instead on politics and Brexit developments.
Taking a look at the technical picture, the GBPUSD bulls look exhausted and vulnerable on the daily charts thanks to Brexit uncertainty. Technical traders will continue to observe how prices react around 1.3400, with sustained weakness below this level opening a path back towards 1.3300. For bulls to snatch back control, the GBPUSD needs to break back above 1.3500.
Dollar Index wobbles above 93.00
The Greenback drifted slightly lower against a basket of major currencies on Tuesday, as investors still remained somewhat anxious despite the US Senate approving major tax cuts over the weekend. With the Senate passing its version of the tax bill, markets will be paying very close attention to how the Senate and the House of Representatives reconcile the difference between their two bills. From a technical standpoint, the Dollar Index remains under pressure on the daily charts below the 93.50 lower high. Sustained weakness below 93.50, followed by a break below 93.00, may encourage a further decline towards 92.50.
Commodity spotlight - Gold
Gold was under pressure during Tuesday's trading session, with prices trading towards $1273 as of writing. With the US non-farm payrolls data released later in the week, the yellow metal could remain range bound as investors stroll to the fence. From a technical standpoint, sustained weakness below the $1280 level, ahead of the pending NFP report may encourage a further decline towards $1267.
EUR/USD Mid-Day Outlook
Daily Pivots: (S1) 1.1836; (P) 1.1857 (R1) 1.1886; More....
EUR/USD's consolidation from 1.1960 is still in progress and intraday bias remains neutral. With 1.1712 support intact, rise from 1.1553 is expected to resume later. Break of 1.1960 will turn bias to the upside for retesting 1.2091 high first. Break there will resume medium term up trend from 1.0339 and target 61.8% projection of 1.0569 to 1.2091 from 1.1553 at 1.2494, which is close to 1.2516 long term fibonacci level. We'd expect strong resistance from there to bring reversal. On the downside, break of 1.1712 will indicate completion of the rise from 1.1553 and turn near term outlook bearish.
In the bigger picture, rise from 1.0339 medium term bottom is seen as a corrective move for the moment. Therefore, in case of another rally, we'd be expect 38.2% retracement of 1.6039 (2008 high) to 1.0339 (2017 low) at 1.2516 to limit upside and bring reversal. Meanwhile, sustained trading below 55 week EMA (now at 1.1393) will suggest that such medium term rebound is completed and could then bring retest of 1.0339 low.
GBP/USD Mid-Day Outlook
Daily Pivots: (S1) 1.3415; (P) 1.3476; (R1) 1.3541; More....
Intraday bias in GBP/USD remains neutral as consolidation from 1.3549 temporary top continues. Downside of retreat should be contained by 1.3337 resistance turned support to bring another rise. Above 1.3549 will target 1.3651 and above. However, decisive break of 1.3337 will argue that rise from 1.3038 has completed and turn bias back to the downside for this support.
In the bigger picture, while the medium term rebound from 1.1946 low is strong, it's still limited below 1.3835 key support turned resistance. As long as 1.3835 holds, we'd view such rebound as a correction. That is, we'd expect another leg in the long term down trend through 1.1946 low. However, sustained break of 1.3835 should at least send GBP/USD to 38.2% retracement of 2.1161 (2007 high) to 1.1946 (2016 low) at 1.5466.
USD/CHF Mid-Day Outlook
Daily Pivots: (S1) 0.9804; (P) 0.9836; (R1) 0.9881; More....
USD/CHF is staying in range of 0.9734/9881 and intraday bias remains neutral at this point. On the upside, break of 0.9881 resistance will indicate completion of the pull back from 1.0037. Intraday bias will then be turned back to the upside for retesting 1.0037. Below 0.9734 will extend the pull back. But we'll look for bottoming again below 61.8% retracement of 0.9420 to 1.0037 at 0.9656.
In the bigger picture, range trading continues between 0.9420/1.0342. At this point, 0.9420 appears to be a strong support level. Therefore, in case of decline attempt, we don't expect a firm break of this level. Nonetheless, strong break of 1.0342 is also needed to confirm upside momentum. Otherwise, medium term outlook will stay neutral.
